VIII. Tracking Mechanism to Ensure Proper
Allocation of DA Default Between Core
and Noncore Classes

A. Parties' Positions

ORA recommends that the Commission adopt a tracking mechanism as set forth in Attachment A of its testimony to facilitate reallocating the defaulted unpaid balances of DA customers that terminate utility service altogether to other DA customers. This tracking mechanism is intended to allow those defaults to be shared by all DA customers. Defaults from non-core DA customers would be allocated partly to core direct access customers, and vice versa.

ORA's proposed CRS tracking account would contain two subaccounts. One would track debts owed by core DA to core bundled customers, and the other would track debts owed by non-core DA to non-core bundled customers. This debt is paid down primarily through the credit entries in line 2. If direct access load decreases, the credit entries in line 2 will be reduced, potentially extending the repayment period. However, if the decrease in direct access load is caused by a direct access customer moving to bundled service, there is a credit entry for the CRS make-up charge in line 3. That entry should be sufficient to compensate for the smaller future credit entries in line 2, thus leaving the repayment period unchanged, assuming the CRS itself does not change.

If, on the other hand, a direct access customer terminates utility service altogether without paying the required make-up charge, then the repayment period is extended. But the impact of that extension is allocated between the core and non-core class in lines 4 and 5. Thus, for example, if a core direct access customer defaults on the make-up charge, part of that responsibility is reallocated to the non-core class through a credit entry in line 4 (corresponding to the debit entry in line 5 of the non-core subaccount), reducing the otherwise applicable debt owed by the core direct access to core bundled customers. Thus, though the repayment period is extended because of smaller credits on line 2, the credit entry on line 4 reduces this extension somewhat. Line 5 in the core subaccount is a debit entry (corresponding to the credit entry on line 4 of the non-core subaccount) that would increase the repayment period in the event of default by a non-core customer.

A potential downside of this mechanism is that defaults by non-core direct access customers will increase the length of the loan for core customers, increasing risk to bundled core customers. ORA believes that the increased protection of having more direct access customers bear the default risk more than compensates for the reduced protection associated with allowing defaults to cross classes.

ORA recommends that the Commission adopt accounting provisions similar to those presented in Attachment A of its prepared testimony. While an accounting mechanism that clearly tracks the obligations of direct access customer will facilitate accurate repayments, the existence of such a system will not necessarily mitigate default risk.

PG&E agrees with ORA that the shortfall associated with the DA CRS cap must be tracked, and proposes the title of the "Direct Access Shortfall Account."

B. Discussion

We agree with ORA that an accounting and tracking mechanism is needed to ensure proper allocation of undercollections between core and noncore customers. We shall incorporate the general accounting requirement principles proposed by ORA as incorporated in Appendix B hereto. SCE has filed a motion to adopt a settlement of the issues in A.03-01-019, including a proposed allocation to classes of the 2001 - 2003 DA CRS undercollection, assumed to be $325.6 million, that is incorporated in the settlement rates. The allocation to classes is not uniform on a per kWh basis. The settlement provides that any difference between the assumed CRS undercollection of $325.6 million and the actual undercollection will be allocated based on whatever methodology is adopted in this proceeding. ORA believes that it may become necessary to track the first $325 million of the CRS undercollection and any subsequent undercollections separately. The tracking mechanism that ORA proposed in its opening and rebuttal testimony (Exhibits 162 and 163) may not be able to accomplish this. Though ORA's proposed mechanism in Exhibit 163 does allow for separate tracking of the rate freeze and post-rate freeze portions of the undercollection, it assumes the rate freeze portion is allocated uniformly, which the settlement in A.03-01-019 does not do.

ORA proposes that the Commission hold a workshop to further develop the record on how to account for the growth and repayment of the CRS undercollection, and how to allocate it to classes. ORA believes such a workshop is appropriate particularly now that a settlement in A.03-01-019 has partially resolved the allocation of the CRS undercollection to classes. We agree that a workshop is appropriate to address these accounting implementation and coordination issues in more detail. We shall therefore direct the ALJ to schedule a workshop for this purpose.